Tranz Rail

Tranz Rail Holdings Ltd

Type	State-owned enterprise (1991 - 1993) Private Company (1993 - 1995) Public company (1995 - 2003)
Industry	Rail transport in New Zealand
Founded	1991 (as New Zealand Rail Ltd)
Headquarters	Wellington, New Zealand
Area served	New Zealand
Services	Rail freight long-distance passenger rail urban passenger rail inter-island ferries
Parent	Fay, Richwhite & Company Wisconsin Central Berkshire Partners
Divisions	Tranz Scenic Tranz Metro Tranz Link the Interisland Line

Tranz Rail, formally Tranz Rail Holdings Ltd (New Zealand Rail Ltd until 1995), was the main rail operator in New Zealand from 1991 until it was purchased by Toll Holdings in 2003.

History

Formation

DXR 8007 wearing New Zealand Rail's corporate livery from 1991 - 1995, in 1993.

On 28 October 1990 the New Zealand government removed core rail transport and shipping operations from the New Zealand Railways Corporation, creating a separate entity called New Zealand Rail Ltd. The government wrote off NZ$1.3 billion in debt acquired by the company from the Railways Corporation, and injected a further $300 million in capital. Despite this capital injection the company remained only marginally profitable, reporting after-tax profits of $36.2 million in 1992 and $18 million in 1993.

The Bolger National government privatised New Zealand Rail Ltd in 1993. The company was sold for $400 million to a consortium named Tranz Rail Limited, made up of merchant bankers Fay, Richwhite & Company (40% via the investment company Pacific Rail, later renamed Midavia Rail), the American railroad Wisconsin Central (40%), and Berkshire Partners (20%).

One of New Zealand Rail's most controversial safety incidents happened in 1994 when 6-year-old Morgan Jones fell under an observation carriage on the Coastal Pacific express, after a hand rail he was holding onto suddenly fell off. Although Jones survived the accident, he was left blind and had a leg amputated.^[1][2]

Renamed Tranz Rail

DQ 6324 at Palmerston North in Tranz Rail's blue livery, used between 1995 - 2001.

DFT 7145 in Napier in Tranz Rail's "bumble bee" livery, used between 2001 - 2004.

In 1995 the company was renamed Tranz Rail Holdings Ltd, and listed in 1996 on the New Zealand Sharemarket and NASDAQ. The listing was made possible by Fay Richwhite & Company selling down its shares.

TasRail investment

In partnership with Wisconsin Central as the Australian Transport Network, Tranz Rail invested in Tasmanian rail operator TasRail (1978-2004) in 1997. The investment provided only marginal returns, and Toll sold the TasRail shareholding to Pacific National, a Toll Holdings partnership with Patrick Corporation, in 2003.

Roger Award

Tranz Rail won the Roger Award for The Worst Transnational Corporation operating in New Zealand on three occasions and was the first corporation inducted into the "hall of shame". The Awards came amidst critical reports of lax safety standards, inadequate maintenance, asset stripping and insider trading.^[3] Toll NZ has been a finalist for the Roger Award twice.

Asset sales

In 1994 the company sold its 15% stake in Clear Communications. The company had gained its shareholding by selling its fibre optic network along the North Island Main Trunk to Clear.^[4]

In 2001 the company sold 50% of its Tranz Scenic long-distance rail passenger operation to two directors of the Victoria, Australia rail operator West Coast Railway. In 2003 this share was purchased by Toll NZ, as one of the West Coast Railway directors had died and the business was not performing adequately.

Under CEO Michael Beard, Tranz Rail sought to sell assets deemed to be non-core and contract out some operations, ie track maintenance was outsourced and the DFT locomotive fleet sold to a leasing company, and then leased back.

Tranz Rail sold the Auckland suburban rail network to the government in 2002 for $81 million.

Takeover

In May 2003, United States based RailAmerica made a takeover offer of 75c per share for Tranz Rail. The offer was later withdrawn when the share price dropped below 50c, and the firm was then put up for sale by the owners. In June 2003, the Government announced that it would buy back the rail network for $1 and purchase a 35% stake in the firm for $76 million (67c per share), which would have given it effective control of the company. The Government would have had the right to nominate three of the seven directors on the board. This met with approval from the Rail and Maritime Transport Union (RMTU) which had run a vigorous "Take Back The Track" campaign for the government to renationalise the railway network. The Rail Freight Action Group, which represents the interests of some of the biggest rail freight using companies, declared its support. Tranz Scenic, the small half-Australian owned company that ran long-distance passenger train services, did likewise.

Toll Holdings offer

In May 2003, the Australian transport firm Toll Holdings purchased a 6.1% share of Tranz Rail, increasing its share to 10.1% by June and 19.9% in July. Toll then launched its own takeover bid, initially offering 75c per share, later increased to 95c.

In July 2003 the Government announced that it was dropping its bid to buy a 35% stake in Tranz Rail, instead allowing Toll to succeed in its takeover bid. Toll’s bid valued Tranz Rail at $231 million. The Government reached a Heads of Agreement with Toll later that month, and eventually bought the rail network for $1, plus $50 million for property assets including leases and Wellington Railway Station. The deal also established a performance regime creating incentives for Toll if it shifts freight from road to rail, and penalties if freight carriage falls below 70% of current levels. If Toll increases freight volumes by 10% or more on certain lines the Government will grant it a track access charge holiday. The parties agreed the Government would spend $200 million over the next five years upgrading the track via the New Zealand Railways Corporation, now operating as ONTRACK.

Toll did not achieve the 90% stake of Tranz Rail it required to meet the Government's deal and compulsorily acquire the remaining 10% of shares, despite raising its offer again to $1.10 per share. In 2003, around 3,000 small shareholders held 25% of Tranz Rail’s shares, many of them major institutional shareholders such as AMI and Infratil. After a number of extensions of the deadline set by Toll, it held 84.2% of shares in Tranz Rail after the offer closed in December 2003. By that time, shares were being sold on the New Zealand Stock Exchange for $1.65, above even the independent valuation of between $1.34 and $1.62 made in July by merchant bankers Grant Samuel. Despite Toll not achieving the 90% requirement, the Government honoured the Heads of Agreement made in July.

In February 2004, Tranz Rail reported a $346 million loss for the half-year ended December 2003. In the same year, it carried 2.1 million tonnes of coal on the Midland line in the South Island. The departure of the former Chief Executive Officer, Michael Beard, and six other top managers cost it $6 million in exit payments.

The company was renamed Toll NZ and did not retain any of the Tranz Rail directors. In May 2008 the New Zealand Government agreed to buy Toll NZ Ltd (less its trucking and distribution operations) for $665 million.^[5]

Securities Commission investigation

In late 2004, the New Zealand Securities Commission launched an investigation into the company regarding alleged insider trading. In June 2007 David Richwhite (along with his shell company Midavia Rail, formerly Pacific Rail) agreed to pay NZ$20 million, but did not admit liability.^[6]

References

1. ^ "The miracle of the boy who fell from the train. What really happened to Morgan Jones". http://www.safekids.org.nz/index.php/ps_pagename/resourcedetail/pi_resourceid/59966.  Abstract of an article in the New Zealand Listener 145 (2839) September 1994 pp 16-22, by Denis Welch
2. ^ Jim Anderton (28 July 2003). "Safety improvements for Rail employees and travelling public in pipeline". New Zealand Progressive Party. http://www.progressive.org.nz/modules.php?name=News&file=article&sid=356. 
3. ^ http://www.pl.net/6business/atlast.htm
4. ^ "September 1994 decisions". Campaign Against Foreign Control of Aotearoa. http://canterbury.cyberplace.org.nz/community/CAFCA/cafca94/sept94.html. 
5. ^ "Rail buy back marks new sustainable transport era". 5 May 2008. http://www.scoop.co.nz/stories/PA0805/S00053.htm. Retrieved 2008-05-05. 
6. ^ Radio New Zealand. "Settlement reached in Tranz Rail insider trading case". http://www.radionz.co.nz/news/latest/200706181236/settlement_reached_in_tranz_rail_insider_trading_case. Retrieved 2007-06-18. ^{[dead link]}

See also

• Toll NZ
• KiwiRail
• Rail transport in New Zealand